Why does social impact sector need profit

Profit is a much-demonised word in the social impact sector, as social enterprises are predominantly defined as businesses aimed to deliver significant socio-cultural and environmental impact and geared towards a humanitarian mission. It is often overlooked that they are businesses regardless of their proclaimed purposes and need to sustain themselves like any business. However, an articulation for the necessity of profit in this sector is met with tremendous amounts of cynicism and doubting of purpose. As scholars Duncan Scott and Simon Teasdale note with arguable distrust, "usage of the title 'social enterprise' may be a deliberate strategy to attract grant funding".

These skeptical observations strip social enterprises of any merit and paint the necessity of financial stability and gain as fundamentally immoral. A timely intervention here would be to emphasise the difference between profit and profiteering. While profit is the difference between income and expenditures of a business, indispensable for sustenance and expansion, profiteering is the use of unethical means to generate unreasonable profits. While the latter is unequivocally harmful for society as it disregards all worthy concerns in a rush for short-term profit maximisation, the former is a necessary component for any endeavour to stay afloat and to create not only economic value but enable social change.

As Anshul Dhamija writes in a 2017 article in Forbes, "Social impact and profitability can co-exist. Profit is inherent to any private enterprise. Without it, you do not get scale. And only with scale can there be impact." This is irrevocably true when purely commercial enterprises have been able to do commendable work in making social impact, purely out of the might of their substantial presence and reach, all attained through profitable enterprise.

For instance, as a Bloomsbury publication notes, a brand like FabIndia works through the idea of "inclusive capitalism", linking more than 86,000 rural producers to modern urban markets, creating sustainable rural employment and preserving India's traditional arts, while paying fair prices to village artisans and producers. This demonstrates how social progress and transformation is not merely the domain of social enterprises and even openly ventures can deliver on the same front if they happen to have the suitable scale. The financial implication of social impact is real and thus, profit, to put it colloquially, is not such a bad thing at all.

The profit made by a social enterprise is re-invested in the business to fortify the social impact it is committed to. In fact, "for-profit" social enterprises can be seen as a worthy futuristic model for combining social impact and business. They are more sustainable because they do not rely on grants for their functioning and generate their own revenue to further their mission. For example, Change.org is a multimillion-dollar for-profit private company and allows users to create campaigns to mobilise supporters around issues they care about. It's currently the world's largest social change platform, with more than 100 million petition starters and signers in 196 countries. To keep up such efforts to tackle gigantic issues, finance has to allow the endeavour to last, and thus, profit becomes indispensable for the same.

As noted by several scholars, successful social entrepreneurs deploy capitalist methods to attain their declared social objectives. While the primary motive might be to pioneer, invigorate and consolidate social transformation and battle large problems, the secondary goal of making a profit is exactly what bolsters the primary mission. A profit-making venture can suitably compensate employees and can pave the way for general well-being in manifold ways. The 2015 State of Social Enterprise Survey in the United Kingdom found that 50 per cent of social enterprises earned a profit in the preceding year, and social enterprises were leading the economic recovery.

Of course, profiteering in the social impact sector is a worrying possibility and concern. However, it needs to be combated through the vigilant implementation of strong policy safeguards and cannot be used as an argument to deny the sheer requirement of profits in the first place.

While unscrupulous activities have to be undeniably dealt with, profits can be made legally and ethically and do not imply a lack of commitment to a larger social imperative. In fact, it is realistic to assume that an enterprise needs to tide over its expenditures to remain potent and present in the domain where the impact is to be made.

To sum up, the social impact sector is located in a capitalist world, which makes profit and capital essential for impact. It is short-sighted to deny this preeminent truth and it must be acknowledged that financial capacity, coupled with correct socio economic objectives can enable required expansions and developments to alleviate the predicaments the world is beset with. Entities in the social impact sector are thus, well within their ethical limits to make profits and spearhead the empowering changes they envision.

(The author is Founder, Upsurge Global, and Senior Advisor, Telangana State Innovation Council)